Porters Analysis of the Chinese E-Commerce Industry - Coursework Example

? Lecturer Paper Porter’s, five forces was adopted in 1979 by Michael Porter who was a Harvard Business School lecturer. He created this analysis, framework so as to respond to SWOT analysis which he believed was lacking a lot of rigor. Porter created a very simple framework to help in understanding various business dynamics. This tool is quite useful given that it helps in the understanding the level of competitiveness and the direction the business is headed. With clear knowledge on current situation, it is possible taking advantage of business’ strength and adopts mechanisms to improve on weakness. This makes this framework a good tool for planning of business processes. This tool is also instrumental in identifying whether new business lines should be exploited or whether they are unprofitable. This tool can however be illuminating when it is used in understanding the balance of power which is in other situations. The analysis in the paper focuses in a Chinese E-Commerce industry using the Porters analysis. Porter believed that it was possible determining the attractiveness of the industry through looking at some of the external factors. The five external forces discussed includes; (Qi 2008) Competitive rivalry within the industry The bargaining power of the suppliers The bargaining power of the customers Possible threat of the new entrants in the market Possible threat of the substitute products The above forces are also some of the main players in the business market and the bargaining and interaction existing between five forces. The interaction is of great importance and critical when it comes to determining the competitive extent of a business in a given industry. The discussion below will focus on the implementation of a competitive analysis through the application of Porters Five Force Model. It will also analyze the intensity of competition in the B2B Chinese market. (Snier & Henk 1995) Competitive rivalry within an industry- medium Any competition rivalry that exists among firms in an industry is the level by which the firm responds to various competitive moves of other firms which are in the industry. Different new drafted reports and data indicate that with increased applications of the internet use, B2C and other models used in e-commerce have been booming in the recent past in terms of its growth. A myriad of businesses have embraced the use of technology in various businesses they do. Almost all the businesses have applied technology to research a number of its clients across the globe. Based on the current analysis and reports which is the third quarter of 2011, the monitoring data of B2C indicated that during its third quarter of the year 2011, the market transaction of B2C went high by 137%. The supply was also recorded at levels high which came from the increased demand for some of the services which are provided. From the data which was released by CNZZ, during the calendar year of 2010, the total number of B2C website went high to a speed of 10,100 in December to about 1.18 million. The difference indicated a growth rate of about 20.45%. The average growth rate of the firm exceeded the total growth speed in the e-commerce industry. The information obtained from CNZZ shows that there The other factor that has been stated to be responsible for the high intensity in the internal competion is the existence of large B2C websites. Some of these websites includes Amazon, Dangdang, Jingdong and QQ Mall among others. For instance in the year 2011, a number of existing B2C websites have tighten their campaigns in order to compete each other. For example QQ Mall’s first move was to launch a program called million marketing resources in the run. This program was a commitment to firms in ensuring that they provide a high quality, low cost and an efficient commerce platform. The users were only expected to pay a total amount of 20,000 Yuan deposit costs besides removing all the fees which are related to the technical costs. Another website Dangdad is committed to ensuring that it continues with the maintenance of about $500 every month and the same proportion of sales among other line of benefits. (David, 2005) There are also other factors affecting the medium level rivalry within the companies operating in the B2C market in the country on top of the stiff competition they are facing. The first factor that is attributed to this is the increased size of B2C market. A research conducted by iResearch, every segment of the online shopping market in China has witnessed growth at different level with high growth rates being recorded in the B2C sector. This includes tmall.com and shop.qq.com which saw a growth level of 19.5%. Given the increase in size of the market, there is an expectation that a number of B2C companies will mainly be focused on attracting new customers as opposed to gaining the share of competitors through high marketing efforts, meaning that the direct competition which is fierce among some of the existing players will be reduced to a given level. The other factor that is responsible to the high rivalry is determination of the business model in B2C. During the growth stages of the B2C industry, it is evident that there are different models of B2C like the raise of D2C model. If the sub market appears, differentiation will help in avoiding price competition since the products are marketed and are positioned differently. (Harding & Trevor 1998) Bargaining Power of Suppliers – low The suppliers bargaining power can easily be shown in their ability to charge very high prices in the demand supply relationship with the B2C Companies. Given that most of the suppliers will be interested in charging high prices to their produces, there will be a power struggle, between the organization and the supplier. When there is a struggle, the side that has high choices to pick from will have high benefits. The other with only one or minimal options will likely loose from the power struggle. To China’s B2C market, the bargaining power of the supplier is always in low because of three main reasons which includes; The contributed input by the supplier is not in any way indefensible to the B2C platforms. A myriad of people visiting the B2C website are in most cases looking for those products having similar functions and they would rarely name a specific brand. This shows that the input which is being provided by competing suppliers must not be there in the B2C websites. The websites are presented with a number of options from different competing suppliers. It is therefore the duty of the supplier to ensure they remain flexible and always be in a position to provide both quality and innovative products to address the needs of the clients. (Kluyver & John 2003) The second reason is that there is very minimal switching cost for the B2C companies to easily change to other supplier firm providers given that the products are not usually being sold in physical stores. To them changing suppliers is not costly and might be compared to changing the descriptions of the website. Given that there is no specific warehouse which is held by the B2C companies in most cases reduces the switching cost of most of the B2C companies and therefore will reduce the bargaining power of the different suppliers. From this argument, it is clear that, it is the suppliers that must ensure that they provide quality services at a very low cost. (Warner 2010) The third factor is that most of the B2C companies are in most cases important customers to the suppliers. Given the large scale of the B2C companies, with regards to their high volume of purchasing like Taobao Mall, the importance of some of these B2C companies have will be responsible in reducing the bargaining power of most of the suppliers in presence of this effect, the suppliers are forced to follow what happens and the regulations as adopted as they can rarely influence what happens in the market.. The firm also does not apply forward integration. Forward integration makes the suppliers to determine and dictate what happens in some of these companies. Given that B2C apply vertical integration, it is only possible that the firms control what they need. This will make it almost impossible for the firms to have control on what happens. (Haley, Chin & Usha 2011) Bargaining Power of Customers – Medium Customers or buyers in most cases have a great power if they are few and at the same time low or even if the product from any organization is not properly differentiated from products which come from other suppliers. China, B2C market is characterized by group of customers who are characterized by having a medium bargaining power due to a number of reasons. The first reason is that the individual customers are usually scattered in different locations and most of their purchases are done online via the B2C website. These purchases are made in different times besides they attempt to have a minimal communications with each other. This means that in most times, they are alone and therefore have very little bargaining power with the main B2C websites. (Kluyver 2000) The second one is that the units which are purchased by the individual customers every time in most cases tend to be very small in terms of their small volume. From the online shopping experience I have, and also the experience from my friends, a number of customers often visit the website when they are looking for a particular products, however the purchasing volume every time would not be as large in most occasions given that the demands are mainly individual needs as oppose to the group needs. The demand is not influenced by what other shoppers are doing but by what individual has in mind. The websites must therefore present information that is catchy to the customers. Through this, it will be possible to have high number of customers visiting the website and in turn expanding the sales turnover. (Snier & Henk 1995) The third is that, individual customers could easily be in a position to increase their bargaining power through opting to choose on a different B2C websites given that the switching cost is very low. The threat of changing the website would however be easily strengthened by the current records showing that B2C websites have been growing in number in the recent past. This means that individual customers will enjoy different choices that will be availed to them. The forth factor is that the individual customers could easily increase their bargaining power through the use of group purchasing power which has its roots in China where there was the execution of the team buying in order to get different discounted prices from a retailer when a group of people in the recent past has become more popular and has continued to grow in number. Given this kind of trend, a myriad of the B2C websites have already endorsed the idea of group purchasing power and will also help in leveraging the power that is seen in the collective bargaining so as to be able to provide online deals which are credible, unique and are of great quality. These kinds of online deals will provide high levels of savings for the consumers besides promising very high great and spectacular sales numbers of various merchants who are participating in trade. (Arons & Waalewijn 1999) Customers in the B2C websites have variety of options to choose from. It is the duty of the website to ensure that services that it offers will entice the customer to choose. It should also be in a position to ensure that the website is made in an easier way that one can easily navigate. An easy navigation and understanding will be an opportunity for the client to convince the customer to join and make the transactions over the websites. Threat of New Entrants – High The possible threats of the new entrants often depend on the level by which the entry barriers are present in a given industry. B2C market in China threat of new entrants is likely to be quite high because of the following reasons’ .The first one is that the capital requirements which are needed in opening a B2C websites are quite low. The websites can either be in a large scale or in a small scale; this however depends on the visiting volume of the customers. For example any beginning website will start small with low customers given that few customers are expected to visit the website at that particular point. This can then expand in future as the number of customers increases. The second one is that a myriad of existing successful C2C websites having the current popularity can find it easy entering the B2C market through the use of their current customer base. For example, Taobao has for quite sometimes been the largest C2C in China though its growth and expansion into B2C gave it very high level growth. Taobao Mall, being an independent platform by 2008 was attracting more than 70,000 brands to enter and was regarded as one of the highest single turnovers in a day at 936 million Yuan. A research conducted and released in 2010 showed that the top 30 retailers Taobao Mall was ranked the first with more than 30 billion which was almost 50% of China’s total share of the ZB2C market in Chzina. The third point is that the channel of distribution is not currently propriety to different existing players. The channels of distribution are regarded as the pathways which are used by a company in selling their manufactured products to millions of its end users. It is possible that B2C and B2B can sell through single channel or more than one which might include internet or group of sales persons. Internet however has been a major source of distribution. Threat of Substitute Products – High The substitute products are those products which are in other industries but can perform similar functions with the products which are in the market. When the threat of substitutes is high then there will be a stronger substitute effects on the price elasticity. If the supply is detected to be leading to higher change in price and demand of the substitute good since it is easy for the customer can easily switch to other goods then the threat from the substitutes become very high. There are a myriad of choices which customers have even when they don’t visit D2C websites. The first option is that they can easily use C2C platforms where they can be able to access thousands of shops which are operated by individual merchants though not officially. Some of these merchants might sometime provide a cheaper price compared to the manufacturers given that wholesalers are interested in protecting the wholesalers and also to keep the online prices at a particular level. The second one is that, the customers could easily go to some of the physical stores and other existing retailers in order to purchase some of the products as opposed to itself. Buying online where a customer can only view a picture and not the good References Arons, H. de, & Ph. Waalewijn. 1999, A knowledge base representing Porter's five forces model. Rotterdam: RIBES, Rotterdam Institute for Business Economic Studies,. David, Fred R.. 2005, Strategic management: concepts and cases. 10th ed. Upper Saddle River, N.J.: Pearson Prentice Hall,. Haley, George T., Chin Tiong Tan, & Usha C. V. Haley.2011, Competitive analysis of Chinese E-Commerce Industry (B2C Sector) with Porter’s Five Forces model (1980). Oxford: Butterworth Heinemann, . 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